Types of Debentures

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There are different types of debentures like redeemable, irredeemable, convertible, non-convertible, fully secured, partly secured, mortgage, unsecured, the bearer, fixed and floating rate, zero coupon, and many others.

The classification of the type of debentures is based on the tenancy, redemption, mode of redemption, convertibility, security, transferability, type of interest rate, coupon rate etc. A debenture is not a standard product that is formed strictly but it is an agreement that is to be agreed between the corporation and the debenture holders.

Types of Debentures

There are various types of debentures on the basis of specified classification.

  1. On the basis of tenure

Redeemable and irredeemable debentures

Redeemable debentures carry a particular date of redemption on the debenture deed. The organization or the company is lawfully bound for repaying the principal amount to the debenture holders on that specified date. Whereas, the irredeemable debentures, are also known as the perpetual debentures and don’t specify any date of redemption. Hence, such debentures can be redeemed either at the time of liquidation of the company or according to the terms of the issue and the time when a company decides to pay them off.

  1. On the basis of convertibility

Convertible and non-convertible debentures

The debenture holders having convertible debenture holders have a choice of converting their affluence into the equity shares. The agreement of the debentures carries the rate of conversion and time period after which the transformation will be affected. On the other hand, non-convertible debentures are simple debentures that don’t have any option of getting transformed into the equity. Hence, their state will never change into equity and will always remain of a debt.

Fully and partly convertible debentures

Convertible debentures are further classified into two broad categories: fully and partly convertible. Fully convertible debentures can be transformed into equity completely whereas the partly convertible debentures have two parts. The non-convertible part just forms the category of redeemable debenture that is repaid after the termination of the agreed period.

  1. On the basis of security

Secured and unsecured debentures

It is not necessary that the debentures may be secure and unsecured in nature. When there is a charge on an asset or set of assets and the debentures are secured by this charge, the term is referred to as mortgage debentures. When these debentures are issued on the credibility of the issuer, the term refers to unsecured debentures.

  1. On the basis of transferability

Registered and unregistered debentures

in the registered debentures, the name, address and all the other details of the holder are registered with the company that issues the debentures and whenever these debentures are transferred by the holders, everything needs to be informed to the issuing organization in order update the records. On the other hand, the unregistered debentures usually known as the bearer debentures shall be conveyed to the new holder.

  1. On the basis of the type of interest rates

Fixed and floating rate debentures

Fixed Rate Debentures have a fixed rate of interest over all the debentures. The Floating Rate Debentures have the floating rate of interest that means the rate of interest keeps on varying.

  1. On the basis of no coupon rate

Zero coupon and specific rate debentures

There is no coupon rate carried in the zero coupon debentures. The debenture holder will not receive any sort of interest on such debentures. The companies or the organizations issue these debentures at a reduced price that is less as compared to that of the face value. The redemption of these debentures is done at the face value. These are also known as deep discount bonds.

Related Article: Introduction to Debentures and the Related Terms

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